Can contractors get a mortgage?
Wondering if you can get a mortgage as a contractor? The short answer is “yes”.
We’re CMME, the specialists in helping contractors secure the mortgage they deserve. Since 2004 we’ve been helping contractors, freelancers, consultants and small business owners navigate the mortgage process and get the best possible deal. If you have any questions about getting a mortgage, or want to discuss your own circumstances, you can call our mortgage advisors for free advice.
Prepare for your contractor mortgage
A contractor mortgage is likely to be the biggest financial commitment that you will ever enter in to. The process can be long and daunting, but one thing it does not have to be is difficult.
When lenders assess a contractor mortgage, they will want to verify income by seeing two to three year’s worth of accounts or tax returns. Lenders have not kept up with changes in the labour market, and their criteria, in many circumstances, fails to accommodate for the growing ranks of independent professionals.
Umbrella company contractors will find that many of their expenses will not be considered when calculating income. Limited company contractors will experience a similar problem, as any money retained in the company, for tax purposes, will also not be considered. Both ways of operating are likely to lead to a less borrowing power.
Let us say you are able to overcome this first problem, you will then face another challenge. Generally, banks and building societies only lend to those who are considered a low risk, and contractors just do not tend to fall into to this category. The reason being is that lenders worry that these individuals will struggle to afford their monthly payments when their current contract comes to an end.
How to get the right contractor mortgage
Although it might seem impossible, contractors can obtain competitive mortgages. It is even possible for them to secure funding with lender’s that may have previously turned them down; however, these lenders need direction from specialist brokers.
Presenting a case is a fundamental aspect for contractors, to ensure they are able to borrow the funding that they need. The application has to be presented in such a way that the lender looks at the borrower and sees them as a good risk.
Our specialist team can help you:
- Prove full income in a suitable way to support the level of funding required.
- Prove long-term income, demonstrating that the monthly payments will still be paid when the current contract comes to an end.
Overcoming the hurdles
A specialist contractor mortgage broker can help with the process as they will have a thorough understanding of each contractor mortgage lender and how they work. These brokers have designed bespoke contractor based underwriting with many lenders, which means contractors are able to avoid the traditional frustrations.
This underwriting ensures that your income will be assessed using a multiple of your gross annualised contract rate. This figure will be used to calculate how much you can borrow, ensuring this is based on your true earnings.
Essentially this means you will be able to secure a larger contractor mortgage because the tax saving methods that you use will no longer cause you to be penalised during affordability testing.
The contractor mortgage broker will be able to present your circumstances upfront to the most suitable contractor-friendly lender.
Any concerns or worries about the way you work can be eliminated at the first possible instance, leaving your credit rating unmarked. To overcome the income longevity issue, your contractor mortgage adviser will inform the lender of your skills and experience demonstrating your ability to secure future contracts.
There are two essential pieces of documentation used by specialist brokers to ensure contractors avoid any issues relating to an affordability:
- A copy of your current contract
- Any up to date copy of your CV
The two items above are only required when you do not have trading accounts or if it is difficult to provide us with copies.
The contractor mortgage broker will be able to present your circumstances upfront to the most suitable contractor-friendly lender.
Top tips for sorting out your contractor mortgage
Approach a specialist broker
The majority of lenders have little understanding about contractors and use procedures which are not suitable for these individuals. A specialist broker uses bespoke underwriting which enables contractor mortgage funding based on contract rate alone.
Improve your credit rating
Lenders have become increasingly reluctant to lend, and often a decent deposit and income is not enough to guarantee a contractor mortgage. A spotless credit rating can increase your chances of being accepted.
Prepare your documentation
Update your CV and obtain a copy of your contract. This way your broker will be able to use them to avoid affordability issues.
Use a contractor mortgage advisor
Ask your contractor mortgage adviser to amend your Agreement In Principle if you want to make an offer that is under what your certificate says. You will be in a stronger position to negotiate if the estate agent does not know how much you can afford.
Ready to talk mortgages?
We hope you’ve found this guide useful. The key thing to remember is that you stand a good chance of getting a mortgage if you can demonstrate a history of earning as a contractor. And even if your records are limited, there may be ways to work around the gaps. To ensure you get the best deal, talk to a mortgage expert who understands the unique factors affecting contractors.
Want to talk to one of our mortgage experts? We offer free, impartial advice, a free initial consultation, and our team is available Monday to Thursday, 9am-7pm and Friday, 9am-5.30pm. Speak to one of our specialist advisors today or give us a call on 01489 555 080.
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